A Landlord’s Guide To Private Tenant Subletting Scams

Rising rents and a shortage of affordable housing has led to a buoyant but illegal subletting market which makes victims of both landlords and subtenants. Paul Shamplina, the landlord’s friends and founder of Landlord Action, breaksdown what landlords
need to know.

What are subletting scams?

There are many different circumstances in which subletting scams occur. But on the whole, they all involve a person(s) abusing a tenancy to profit from it by unlawfully subletting to someone else.

Most commonly, a person takes out a tenancy with a landlord or letting agent in the normal fashion, but never actually moves in. That person then re-lets the property to another subtenant (for more money) or even multiple occupants, without the landlord’s
permission, in order to make a profit.

Subletting scams and unauthorised sublets are rife in the UK’s private rented sector (PRS). Direct Line for Business research estimated 3.3 million people live as unofficial tenants in 2014 – that is as many as 1 in every 10 rental homes.

How do these scams happen?

Often, subletting scammers appear to the real landlord or agent as respectable tenants who intend to live in the property for years. They may even be able to pass all the necessary checks to an untrained eye by using false references.

Once a tenancy agreement is in place, they either move in to the property themselves for a short time to avoid arousing any suspicion, or don’t move, in but wait a month or so before subletting.

The tenant will then typically draw up tenancy agreements for individual rooms and let them out separately – as if they were the real landlord. In other cases, tenants have let rooms on a nightly/weekend basis using holiday/room let websites.

One of the most notorious cases Landlord Action was ever instructed to work on was that of Rose Chimuka, the serial illegal subletting scammer. Ms Chimuka took leases on family homes across south London. Once in the property, she would change
the locks and then divide the properties into bedsits and sublet them to dozens of desperate tenants. She would collect the rent but never pass it over to the landlords.

Ms Chimuka used fake identification to convince unsuspecting landlords she was a suitable tenant. Each time she was found out, she would disappear and start again elsewhere.

What are the typical signs of a subletting scam?

The most common signs to identify subletting scams are:

If a single person is looking to rent a property much larger than they need based on who is on the tenancy agreement, alarm bells should ring straight away

If a tenant is insistent on offering six months’ rent upfront

If a landlord or agent receives a complaint from a neighbour, the council or the freeholder of the building with regards to the number of people coming and going from the property or excessive noise

Tenants making excuses as to why a landlord can’t visit the property and making it difficult for them to do so

Tenants will be hiding evidence of extra subtenants. During routine property inspections landlords should look for additional clothing and shoes, excessive rubbish for the number of registered tenants; additional bedding like sleeping bags and pillows;
and suitcases, rucksacks and extra toothbrushes.

Is tenant subletting a criminal offence?

In some circumstances it's acceptable to sublet a property, but tenants need their landlord's permission. Landlords can take legal action against tenants if they sublet their property unlawfully. Unlawful subletting includes if a tenant:

sublets all or part of the property without written permission

is not permitted to sublet all or part of the property but does so anyway

In these circumstances, a tenant will most likely have broken a term in their tenancy agreement. On that basis, landlords can take action to evict the tenant.

Certain social housing tenants may also commit a criminal offence if they unlawfully sublet their home and could be prosecuted under criminal law.

Subletting a property could also be a breach of the terms and conditions of a landlord’s mortgage and insurance conditions. It may also turn the property into a licensable HMO (House in Multiple Occupation).

An HMO is a property rented out by at least three people who are not from one ‘household’ (e.g. a family) but share facilities like the bathroom and kitchen. If a property is rented to five or more people, is at least three stories
high, and tenants do share such facilities, the landlord must have an HMO license. HMO landlords have additional responsibilities under the fire safety regulations and penalties for renting out an unlicensed HMO are up to £20,000.

What is Rent to Rent and is this an option for me?

“Rent to rent” is a simple concept which emerged only a few years ago. It involves someone renting a property and then subletting the rooms to subtenants to make a profit. Unlike unauthorised subletting, the landlord is part of the
scheme.

The idea behind how it works involves a tenant (or “renter”) offering a landlord a guaranteed amount of rent for a set period, say three years. This amount is likely to be less than its actual market value. But the landlord benefits from
guaranteed rent with no void periods and no tenant issues for the foreseeable future.

The tenant agrees to look after the property, take care of maintenance issues and in some cases, even carry out a refurbishment on the property. Then, the tenant sub-lets individual rooms to subtenants willing to be part of a house share. The “renter”
then makes a profit on the difference between the rent he/she is paying the owner/landlord and the rent coming in from the subtenants due to the multi-let.

This is a mushrooming phenomenon has led to some claiming people can generate tens of thousands of pounds with virtually no out-lay. In my opinion, it all sounds too good to be true, and on the whole, it is.

Currently, demand for rental properties has pushed rental inflation well beyond the levels at which tenants’ wages have risen. As such, there is concern that the “rent to rent” strategy simply encourages over-crowding and unethical
practice. Far from creating more affordable housing, in many cases it offers tenants even less at an over-inflated price.

There are reputable ‘rent to rent’ landlords/companies following best practise with solid business models. But there will always be those who cut corners, leaving the landlord at risk of losing control of their property, which is where the
problems begin.

Some landlords may willingly enter into rent-to-rent, but the promotion and growth of this strategy could cause a rise in landlords becoming victims of subletting scams; where, far from being aware of what is happening in their property, tenants start
to sublet rooms without the landlord’s permission.

How can I report a tenant who is subletting?

A landlord can’t report a tenant for subletting unless he/she is receiving housing benefit, in which case a landlord can report them to the council. However, if a landlord is the victim of a subletting scam where numerous individuals are living
in the property, making it an HMO (house of multiple occupation), it is worth informing the council. This will make them aware of the situation and avoid the landlord receiving a fine for having an unlicensed HMO.

If there is criminal activity at the property, landlords can then report this to the police. Or if the tenant is in breach of ‘Right to Rent’ regulations, landlords must report them to the Home Office.

Landlords who suspect their property has been sublet should first try to contact their original tenant. This may not be easy, particularly if the landlord cannot track them down. In which case, it’s a good idea to speak to the subtenants who may
have more current contact information.

Most tenancy agreements have a clause that prevents subletting. If this is the case, landlords should notify their original tenant of his or her breach of their tenancy agreement. This notice should state what the landlord plans to do if the situation
is not rectified. It should also provide the tenant a specific period of time, such as 30 days, to fix the problem.

Assuming the tenant is in breach of contract, the landlord can end the tenancy without the major restrictions imposed on ending a statutory Assured Shorthold Tenancy (AST). In this instance, landlords can take immediate court action against their tenant
for breach of contract and for eviction of the subtenant, if required.

Landlords must end the tenancy legally before either agreeing a new tenancy with the subtenant, or proceeding to evict them.

How can I avoid tenant subletting scams happening to me?

This is where thorough tenant referencing is paramount. There are three reasons for referencing a tenant:

To verify a person is who they say they are

That they can afford the rent;

That they have honoured past tenancies.

Information collected on the tenancy application can be used to trace them, should they abscond, or leave owing money. Plus, should the applicant make false statements, this document provides evidence for eviction.

Thorough tenant referencing will include checks such as:

Credit check

Affordability check (based on income)

Residential check – ensure they live at the address they say they do

Public Information – look for CCJs or bankruptcy filing

Previous landlord reference

Employer reference

Extra precautions, such as asking for three months’ bank statements can help catch out potential fraudulent tenants. Landlords or agents should take time to compare addresses shown on the application with those shown on the ID documents and any
utility and or telephone bills supplied.

Landlords should also be prepared to carry out regular property inspections during the tenancy to look out for tell-tale signs of subletting.

Tenant verification service

Landlords should always consider using a professional tenant referencing service, either through their letting agent, or if self-managing, using an independent tenant referencing service.

Inexperienced landlords may not know what to look out for and using a professional service reduces the risks when letting to a new tenant. A tenant verification service will run all necessary checks provide a background history and credit reports, to
help a landlord avoid letting to the wrong person.

Conclusion

Landlords should remember that in many cases, those who fall victim to subletting scams have not failed to carry out thorough referencing checks beforehand.

As well as landlords, subtenants also become the victim of these scams. In many cases, they aren’t aware who the real landlord is, that their deposit has been pocketed by an unauthorised ‘subletter’, or that they could be at risk
of being evicted.

Inevitably, illegal subletting leads to issues of overcrowding and often unsanitary conditions where the risk of damage to the property is dramatically accelerated. Landlords should do all they can to protect themselves and their property, and never be
tempted to cut corners on thorough tenant referencing.